BOB DOLL: THE S&P 500 IS GOING TO 1550

Here come the bulls!  Via Bloomberg TV:

Bob Doll, chief equity strategy at the world’s largest money management firm BlackRock, spoke to Bloomberg TV’s Trish Regan and Adam Johnson on “Street Smart” today. Doll said that he thinks equity valuations will grow stronger and “at S&P 1550, stocks would still not be expensive…If Europe continues to heal and the Middle East doesn’t blow up, 1550 is do-able.”

Bob Doll’s predictions for the stock market:

“This isn’t a year about economic growth or earnings, it’s all about the probability of the left tail risk. How afraid are people? When the stock market yields the same as a ten-year Treasury, people are invested in a very afraid manner. My view is that this year is when fear dissipates some, the crisis premium comes out, the risk premium comes out and that means interest rates move up, spreads narrow and equity valuations move up.”

“Our target coming into the year was S&P 1350 plus because our prediction was a double-digit gain in stocks.  If Europe stays in the background and behaves itself, we could see a whole lot of the plus and this could be a great year for equities.”

“We’re not changing our target. We could see 1550, and our target will still be accurate. It’s all about Europe, if that left tail risk dissipates. At S&P 1550 stocks would still not be expensive…If Europe continues to heal and the Middle East doesn’t blow up, 1550 is do-able.”

On why market volume is so low: 

“There’s still a lot of cash on the sidelines waiting to come in….I’m being a bit extreme, but I think stocks are the place to be. At some point we’ll get a pullback, we’ll get a sloppy period as things will go sideways, you’ve seen the mini-corrections and they last about one day and half because there’s some many people are waiting for a pullback.”

On what equities to invest in:

“I still think having a cyclical orientation – meaning you want to own technology, some energy, but I’m not afraid to buy some healthcare either to get some defense in the portfolio. What you really want is companies with good free cash flow.”

On bank stocks:

“We have more [bank] banks than we did six months ago, but still not a big weighting there. While they’ve done well, I’m still concerned about where the revenue growth is coming from, what’s the regulatory environment means. [The stress tests] were certainly a positive step in the right direction, but stress tests are all about credit…For earnings to grow, it’s not going to be about less bad news, but where’s the revenue growth?”

On interest rates impact on stocks:

“For me, it’s about the pace of increase rather than the level. If we go up 10 basis points per day, as we did early this week, I’m going to get scared fast, but if it’s slow but steady as I’m expecting, not a problem at all. Stocks are still cheap relative to bonds.”

“In a zero interest rate environment, at the short-end, 2 percent for a 10-year Treasury and very little inflation, 14 times growth for the S&P is cheap.”

“We’re up 30% since the low of October 1st - for six months, that seems pretty quick for me. I think some people are just praying for a pull-back so they can put some money in.”

On QE3:

“I don’t think we’re going to get QE3 if the U.S. economy is growing anywhere close to 3% and unemployment is falling. That’s hardly the condition for an emergency, and QE3 is for emergencies. We don’t have one, so I think it’s on the back burner… The Fed’s been a little bit more forward about that and markets have hung in there. For the bears among you, we’re appreciating at a slower rate. We’re a little overbought. We’ll get a correction, but a correction could just be time without much change in price.”

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. I would have more respect for Mr. Doll’s prediction if he had made it 6 months ago. Maybe he thought it, but didn’t want to get fired. And who was that bold individual at “? can’t remember the firm” who did get canned? I hope they are trying to re-sign him, with a big bonus! The herd is a dangerous crowd!

    • And one other thought… does this remind anyone of the rock solid optimism of the Greenspan/Bernanke housing bubble? Are we incurable bubble fools?

    • I specifically remember him making the same calls around this time last year…..give or take. I don’t disagree that we are going to keep melting up, but perma bulls are no different than perma bears….If you never change your position eventually you are going to be right.

  2. Quite frankly, I do not even understand why we need to even pay attention to these overpaid clowns. They have been so discredited that it is an embarrassment to have them around. Of course, sooner or later he will be proven right, and people forget when one has been wrong, especially on the bullish side.

  3. I always cringe when I hear someone talk about the “cash on the sidelines” as a factor ready to provide a further boost. Its nearly as bad as when someone says shares are “under-owned”.

    There’s ALWAYS cash on the sidelines and shares are ALWAYS fully-owned. Its a crazy arguement – if you exchange your cash for shares then the guy who sold you the shares has the “cash on the sidelines” and you have his shares. There’s the same amount of cash on the sidelines as there was at the start of the day.

    I’ve noticed that the “cash on the sidelines” line tends to make an appearance well into a rally phase when pundits are trying to justify why further gains are to occur – its another sign this rally is long in the tooth…

    • Not exactly. Companies can always issue new shares, and often have their IPOs in bull markets. New shares are usually issued for executives to cash in. And cash on the sidelines will diminish with time in a bull market because the IRS and the State will take 15-40% of the trading profits every year.

  4. If he said the market would hit 1405 by June back in January what would u all written.
    ” he’s an idiot?”
    If he said it would hit it by March? “he irresponsible?”
    But here we are!
    And zero hedge is going crazy…pictures of computer generated Greek volcanos, north korea missiles, stories of county gold purchases, central banker inflation charts.
    Not one comment thinks this can happen. I don’t know if it will or won’t but I’d put down the reasons why it won’t and ask yourself what if it does. Why does your brain want to keep you from seeing that possibility.
    I DON’T KNOW. I HAVE NO CLUE. Thus I’m open to the possibility that 77 million baby boomer retirement plans, institutions, pensions, central banker annuity type guarantees, policy makers and many more who don’t wory about when to sell but stay fully invested no matter what may be right. I may be wrong.
    That the profit margins bonuses and stock grants are used to by more stock or other investments that show up next quarter when everyone is expecting a slow down. I don’t know.
    Neither does Dole but why have YOU allowed yourself to pick the other side of anything that says something positive?

    • You are not alone and neither is he. Equity put to call closed Friday at the lowest level of the year, suggesting the entire herd is now on board. Not sure where you will find enough juice now that shorts are pretty much decimated, but good luck.

  5. Anyone who fails to acknowledge the current global rally was fueled by $1.2TR of ECB LTRO slosh is a charlatan.

  6. It seems like we’re at the point where stocks go up no matter what. Even saw a spin where a China crash is bullish. It’s all good! Waiting for the P/E spin on 20-25 as the new normal. Very little fear in the stock market. For me, if there is a real fear driven correction, I have my list. If it climbs and climbs, I cash out options early. It’s fun to watch.